Consignment Inventory Guide for Retailers (2026)

Consignment inventory lets retailers sell products before purchasing them. Learn the process, benefits, risks, and best practices.

Consignment inventory lets retailers sell products without buying them upfront. Instead, the supplier keeps ownership until the retailer sells the items. Afterward, the supplier gets paid a commission from the sale. 

Inventory problems can reduce available cash and cut into revenue. IHL Group’s 2025 research estimated that retailers lose $1.73 trillion annually from inventory distortion, including out of stocks and overstocks. Consignment lets retailers test products before committing capital to inventory that may not sell.

This guide explains how consignment inventory works and when the model makes sense for retailers and suppliers.

What is consignment inventory? 

Consignment inventory is an arrangement between a supplier and a retailer. The supplier is the consignor, and the retailer is the consignee.

The retailer stocks and sells the product, but the supplier keeps ownership until a customer buys it. After a sale, the retailer pays the supplier in accordance with the consignment agreement.

This model lets retailers carry inventory without buying it upfront. Unsold products are handled according to the agreement. In many cases, the supplier takes back the remaining stock at the end of the consignment period. 

Consignment can be a way for suppliers to place products in retail stores before moving into wholesale. It can also help them see how customers respond before producing or distributing more inventory.

Consignment inventory vs. wholesale inventory

Ownership is the difference between consignment inventory and wholesale inventory. 

• Consignment. The supplier owns the product until it sells. 
• Wholesale. The retailer owns the product after buying it from the supplier.

The table below shows the differences in more detail:

Area	Consignment inventory	Wholesale inventory
Ownership	Supplier owns until customer sale	Retailer owns after purchase from supplier
Purchase/payment obligation	No upfront product payment	Pays before resale
Payment timing	Commission or percentage paid to supplier after customer purchase	Before customer sale
Return rights	Agreement may allow returns	Supplier policy controls returns
Unsold-inventory risk	Supplier carries risk	Retailer carries risk
Best fit	Testing demand	Predictable demand

Consignment can lower the retailer’s upfront inventory spend, but the supplier waits longer for payment. Wholesale provides the supplier with earlier revenue and the retailer with more control over pricing and inventory planning.

Consignment inventory examples

Consignment inventory can work in several retail settings. The details vary by agreement, but the model is the same.

Apparel resale

A consignment apparel store accepts used clothing from individual sellers. The store lists or displays the items, then pays the original owner after an item sells. If the clothing does not sell within the agreed period, the seller may take it back.

Apparel resale is the biggest market for consignment. ThredUp’s 2025 Resale Report estimates the global secondhand apparel market will reach $367 billion by 2029. The US market is expected to reach $74 billion in the same year.

Home goods and décor

A home goods store stocks candles, vases, wall art, and seasonal décor from independent makers. The retailer displays the products in-store or online, and the maker keeps ownership until a customer buys the item.

Home goods brand Sweet Water Decor used Shopify Collective as both a supplier and retailer. As a retailer, it sourced products from 35 suppliers and used Collective to test categories before investing in production

“Collective has become our gateway to building meaningful vendor relationships,” says Mackenzie Allshouse, associate merchant at Sweet Water Decor. “It’s created mutual success opportunities where everybody wins.”

Brand collaborations

Consignment can also apply to short-term product collaborations. A retailer may carry a partner’s product during a launch, event, or seasonal campaign. 

For example, Mattel Creations used Shopify Collective to sell Funboy’s Barbie-themed pool float through its own site. The team wanted to add products without buying inventory upfront and launched the new product within two weeks.

“Future partnerships are now much more approachable through Shopify Collective’s simplified onboarding process and the ability to quickly meet consumer demand in the market,” says Mark Hall, senior director of Digital Technology at Mattel Creations.

How consignment inventory works 

Consignment inventory allows a supplier to place products with a retailer while retaining ownership until the items sell. The retailer sells the products to customers and then pays the supplier according to the terms of the consignment agreement.

The process includes five steps:

1. Delivery. The supplier sends inventory to the retailer.
2. Accounting. The supplier keeps the products in its inventory records.
3. Sales processing. The retailer sells the item to the customer.
4. Payment. The retailer pays the supplier based on the agreed terms.
5. Unsold items. The retailer returns unsold goods or handles them according to the agreement.

1. Consigned inventory delivery

The supplier delivers the agreed products to the retailer’s store or warehouse. When the shipment arrives, the retailer checks the items against the consignment agreement before adding them to the sales floor or storage area.

Every store will have a different process, but when receiving inventory, document:

• Date received
• Supplier name
• Consignment agreement or reference number
• Product names, SKUs, or item descriptions
• Quantities received
• Product condition
• Any missing, damaged, or incorrect items
• Storage or display location
• Return date or consignment period end date

Transparent receiving records help both sides confirm what inventory was delivered, where it is being held, and which items are available for sale.

Supplier responsibilities:

• Provide the agreed inventory
• Include product and pricing details
• Keep ownership of the goods
• Set delivery and return terms in the agreement

Retailer responsibilities:

• Receive and inspect the products
• Document item details and quantities
• Note any discrepancies or damage
• Store or display the products for sale

2. Accounting treatment

The supplier retains ownership of consigned goods until they are sold, returned, or handled another way under the consignment agreement. A retailer will track items separately from owned inventory, so consigned stock isn’t mixed up with purchase stock. 

In Shopify’s 2025 survey of store owners,* 69% of merchants said they review finances at least weekly. With consignment inventory, those reviews include records for stock received, items sold, supplier payouts, and remaining inventory.

Supplier responsibilities:

• Track products sent to each retailer
• Keep consigned goods in inventory records until sold
• Record quantities shipped, sold, returned, or written off
• Track sales reports from the retailer
• Reconcile supplier payouts, commission amounts, and remaining stock

Retailer responsibilities:

• Track consigned stock separately from owned inventory
• Record quantities received, sold, returned, or damaged
• Track retail prices and supplier payout terms
• Record the supplier amount owed after each sale
• Keep sales, return, and payout records tied to the consignment agreement

Accounting treatment varies by jurisdiction, contract terms, accounting method, and business structure. Confirm the correct treatment with an accountant or qualified adviser.

3. Sales processing

When a customer buys a consigned product, the retailer processes the sale. The retailer then remits the pre-arranged portion of the price to the supplier and keeps the remainder as their commission for facilitating the sale. 

For instance, if a consigned item sells for $120 and the contract stipulates a 60/40 split, the retailer would keep $72 and pay $48 to the supplier.

Supplier responsibilities:

• Define the revenue split in the agreement
• Review sales records
• Confirm the amount owed

Retailer responsibilities:

• Process the customer transaction
• Record the sale
• Calculate the supplier’s share

4. Payment

Payments to the supplier might occur immediately per transaction or on a regular payout schedule—like biweekly, monthly, or quarterly—as specified in the consignment agreement. 

Supplier responsibilities:

• Set payment expectations in the agreement
• Issue invoices if required
• Review payouts against sales records

Retailer responsibilities:

• Pay the supplier on schedule
• Keep clear records of sold items
• Share payout details when needed

5. Handling unsold items

If products remain unsold at the end of the consignment period, the retailer usually returns them to the supplier. The agreement should explain how returns are handled, when products must be returned, and what condition the items should be in.

The agreement should also state who is responsible if goods are damaged, lost, or stolen before sale. For example, the supplier may keep ownership of the goods, but the retailer may still be responsible for protecting them while they are in its store or warehouse.

Supplier responsibilities:

• Take back unsold goods, unless the agreement says otherwise
• Confirm the condition of returned items
• Decide how returned inventory will be handled
• Update inventory records after the return

Retailer responsibilities:

• Identify unsold consigned items
• Return products according to the agreement
• Report damaged, lost, or stolen goods
• Update inventory records after the return

Benefits and risks of consignment inventory

Consignment inventory lets retailers carry products without buying them at delivery, but that lower upfront inventory cost comes with operational work. Consigned goods still need to be received, tracked, sold, reconciled, and returned if they go unsold. 

In Shopify’s 2025 survey of store owners,* 34% of merchants cited ensuring stable cash flow as their second business goal. Consignment can help store owners conserve cash when inventory costs are high or demand is uncertain. 

Each party has its own risks and rewards from the consignment model.

Party	Benefits	Risks and responsibilities
Retailer	Lower upfront inventory cost More product variety	Separate tracking Sales records Payouts Returns
Supplier	More retail placement Ownership until sale	Delayed payment Unsold stock Limited visibility without clear reporting

Consignment inventory best practices 

Both parties need agreed-upon terms and regular performance reviews for consignment to work. Here’s how to manage it well:

• Create a consignment agreement
• Use inventory tracking and reconciliation systems
• Start small and assess performance
• Explore modern platforms to find partners

Create a consignment agreement 

Write a consignment agreement before the retailer receives any products. The agreement should name the supplier and retailer, specify the products being consigned, and explain how the arrangement works.

Include terms for:

• Revenue split. The commission rate, wholesale payout, or profit split.
• Payment timing. When the retailer pays the supplier after a sale.
• Consignment period. How long the retailer can hold the goods.
• Shipping costs. Who pays for delivery, returns, and transfers.
• Inventory records. How both parties track received, sold, returned, and missing units.
• Damage or loss. Who is responsible for stolen, damaged, or lost goods.
• Insurance. Which party carries coverage while goods are in the retailer’s possession.
• Discount approvals. Whether the retailer can mark items down.
• Unsold goods. When products are returned, extended, discounted, or removed.

For US businesses, the agreement may also need to address secured transaction rules. Under UCC § 9-103(d), a consignor’s security interest in consigned goods is treated as a purchase-money security interest in inventory. This means that the supplier is treated like a lender and entitled to repayment or reclamation of goods. A lawyer can help determine whether the consignor needs to take extra steps to protect that interest.

Use inventory tracking and reconciliation systems

Mixing consigned and owned stock can make payouts, returns, and end-of-period counts harder to verify. Set up each consigned product so both parties can answer four questions at any time:

• What came in? Record the SKU, variant, quantity received, supplier name, date received, agreed payout, and consignment period.
• What sold? Track units sold, sale dates, sale prices, returns, taxes, and the amount owed to the supplier.
• What changed? Log transfers, damaged goods, missing units, stock adjustments, restocks, and returned items.
• What is left? Compare remaining inventory against the original quantity received, sales records, returns, and adjustments.

Reconcile inventory on a set schedule, such as monthly or at the end of the consignment period. Retailers and suppliers can compare reports to verify the payout. Any damaged, missing, discounted, or returned goods are resolved during inventory reconciliation.

Inventory tracking can cover the day-to-day recordkeeping behind consignment. Shopify lets stores create products, track inventory in Shopify admin or Shopify POS, and adjust quantities when stock changes.

Shopify is not a full consignment ledger on its own, so businesses with regular consignor payouts may need a dedicated app. ConsignCloud is made for consignment inventory with vendor management tools for payouts and consignor portals. 

Start small and assess performance

If you’re wading into a new partnership or trying consignment with a new product, start with a small quantity and a shorter consignment period. This is a trial for both parties: The supplier can see if the product sells well, the retailer can test whether this is a good fit for their needs, and both can gauge customer interest.

After the trial period—say, 90 days—review the sales performance together. If the retailer sells well, you may want to consign more units or extend the consignment inventory arrangement. 

If the product barely sold, discuss why: Was it the wrong customer segment? Was it a lack of promotion? Making these assessments means more informed decisions on whether to continue, adjust pricing, swap out products, or end the consignment deal.

Explore modern platforms to find partners

Consignment isn’t limited to local, in-person arrangements. Online platforms now connect brands and retailers for consignment-style partnerships. For example, Shopify Collective lets Shopify store owners partner up—a retailer can import products from a supplier’s Shopify store and sell them without buying inventory upfront.

Sweet Water Decor used Shopify Collective as both a supplier and retailer, forming 126 partnerships and generating 9% of total annual Shopify sales through Collective.

Common consignment mistakes to avoid 

Consignment adds another facet to inventory management, increasing the risk for error. Be aware of these potential consignment mistakes:

• Not tracking your own numbers
• Handing over inventory without safeguards
• Overlooking the true cost of consignment

Not tracking your own numbers

Both suppliers and retailers should keep their own records of what’s sent, what sells, and what’s unsold. The goal is to keep everyone aligned with the clauses in your agreement. 

Regular reconciliation helps both sides catch errors early. A 2025 inventory study of grocery retailers found that inventory audits led to an 11% store-wide sales lift, with the gains linked to items where system counts exceeded actual stock.

Handing over inventory without safeguards

Consigned inventory belongs to the supplier until it sells. The agreement should explain how products will be stored, displayed, insured, counted, and returned. 

It should also state who is responsible for theft, damage, shrinkage, and loss. Retailers take on the risk here. The National Retail Federation’s (NRF) 2025 retail theft and violence study found that retailers reported an 18% increase in the average annual number of shoplifting incidents.

Overlooking the true cost of consignment

Gross sales alone don’t show whether a consignment deal is profitable. For example, an independent apparel brand may place 20 dresses in a boutique at $80 each. The total retail value is $1,600. If the store sells 12 dresses on a 60/40 split, the supplier earns $576 before costs. These costs may include tagging, delivery, and delayed payment, shrinking the total amount even further. The retailers also have work to do, such as displaying the dresses. If the store earns $384 in commission, both sides need to decide whether the margin justifies the time and shelf space.

Retailers must also account for costs related to shipping, pickups, merchandising, and returns. The NRF projected total retail returns to reach $849.9 billion in 2025, with 19.3% of online sales expected to be returned. 

*Based on a 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with two or more years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.

Consignment inventory FAQ

What is an example of a consignment inventory?

A mom-and-pop bookstore might display novels from a small publisher without paying upfront, remitting payment only when customers actually buy the books. If the books don’t sell within 90 days, the bookstore simply returns them at no cost.

What does it mean to have inventory on consignment?

Inventory on consignment means a supplier places products with a retailer but keeps ownership until the products sell. After a sale, the retailer pays the supplier the agreed share and keeps the remaining amount as commission.

How do you keep track of consignment inventory?

Businesses use inventory management software that can separate consigned goods from owned inventory, tracking which items belong to which suppliers and when payments are due. Regular reconciliation between the consignor and consignee ensures both parties agree on what’s been sold and what’s still on the shelves.

What are the risks of consignment inventory?

For the consignor (supplier), the main risk is that their cash flow is tied up in inventory sitting in someone else’s store with no guarantee it will sell. For the consignee (retailer), consigned items take up valuable floor space that could be used for products they own and control, plus they risk being liable for damaged or stolen goods that don’t actually belong to them.

What are the disadvantages of consignment stock?

Consignment stock requires careful tracking because the retailer is selling goods it has not purchased. Suppliers wait longer for payment, and retailers still need to count, merchandise, reconcile, and return unsold inventory. Plus, paying retailer commission means less profit for your business.